World steel prices would remain sharply elevated if analysts are...

World steel prices would remain sharply elevated if analysts are correct in their view that iron ore prices will rise by an average 22% next year and another 10% in 2009 to $111/metric ton.

The iron-ore market may be tighter in 2007 than it was in 2006, says a report by UBS Securities analyst Roger Downey. “It is only June and the iron-ore market is already showing clear signs of tightness,” he wrote on June 18.

This week, Bloomberg News Service writes that other analysts at UBS Securities and those at Macquarie Bank, Citigroup and Credit Suisse all say the increased production at steel mills worldwide is driving demand for iron ore – which will allow for higher prices ahead. Interestingly, J.P. Morgan Securities only sees iron ore pricing rising by 10% in the fiscal year starting next April 1.

Global steel production has outpaced market predictions and is up 3.8% for the first five months of the year, according to the International Iron and Steel Institute. That’s why the bullish analysts believe BHP Billiton, Rio Tinto Group and Compania Vale do Rio Doce (CVRD), the trio of mining companies responsible for three-quarters of global trade in iron ore, are in a good bargaining position for higher prices.